Hello, dear taxpayers! Today, we're delving into some important news from the IRS that could impact how you report income from third-party payment platforms in 2023 and beyond.
The Big News: Delay in Form 1099-K Reporting Threshold
The IRS recently announced a delay in implementing the new $600 Form 1099-K reporting threshold for 2023. Initially, this change was part of the American Rescue Plan, aimed at lowering the reporting threshold for payments received through third-party platforms like payment apps and online marketplaces. However, to ease into this transition and address concerns from various stakeholders, the IRS has decided to stick with the previous threshold of over $20,000 and 200 transactions for 2023. What’s more? There are plans to introduce a $5,000 threshold in 2024.
What Does This Mean for You?
For 2023: If you use payment apps or online marketplaces for business transactions, you’ll only receive a Form 1099-K if your total transactions exceed $20,000 and number over 200.
Looking Ahead to 2024: The planned $5,000 threshold will come into effect, changing the reporting landscape significantly.
Anyone using these platforms to sell goods or provide services could receive a Form 1099-K. This includes side hustlers, small business owners, crafters, and other sole proprietors. Notably, casual sellers, like those selling personal items at a loss, will also be impacted. The IRS recognizes the complexity this change brings, especially for casual sellers, and aims to make the reporting process smoother.
Managing Your Form 1099-K
If you receive a Form 1099-K:
Review It Carefully: Ensure the reported amount is accurate.
Identify Deductible Expenses: Some expenses related to the payments may be deductible.
Report Appropriately: The location on your tax return where you report this income varies depending on the type of payment (e.g., income from rideshare driving would go on Schedule C).
Handling Sales of Personal Items
Sold at a Loss? You can zero out the payment on your tax return by reporting both the payment and a corresponding adjustment on Form 1040, Schedule 1. This prevents paying taxes on income you didn’t actually earn.
Sold at a Gain? This should be reported as income. You'll need to use Form 8949 and Schedule D (Form 1040) for these transactions.
What's Not Reportable?
Not everything needs to go on Form 1099-K. Personal transactions, like sharing a meal's cost or receiving birthday gifts, are not taxable and shouldn’t be reported on this form.
While the delay in the lower threshold for Form 1099-K reporting gives taxpayers more time to adjust, it's crucial to stay informed and prepared for the changes ahead. Remember, the IRS provides extensive resources to help navigate these complexities. For more details and guidance, check out their announcement "Understanding your Form 1099-K".
As always, if you have specific concerns or need personalized advice, don't hesitate to reach out to us. Let's stay ahead of these changes together and ensure a smooth tax season!